The coronavirus (COVID-19) health and economic emergency is likely to drive up Q2 unemployment rates by around five percentage points across most of Emerging Europe, but the labour market fallout in Turkey could be far worse, Liam Peach of economic research company Capital Economics said on April 28 in a research note.

Of the assessed economies, Turkey is seen by Peach as likely to suffer the biggest collapse in output during the quarter, at around 18%. That’s given the size of its tourism industry and the importance of sectors that Capital concludes are the most vulnerable to social distancing measures and drops in economic activity, such as retail, transport, accommodation, food and recreation.

Capital has also estimated that aggregate EM GDP will shrink by 4% this year, by far the worst outcome since the keeping of reliable records began in 1960. The recovery will be fitful, with output at an aggregate level likely to remain below its pre-virus path even by the end of 2022, the company said on April 28 in a separate note entitled “Long-lasting economic damage”.

The scale of the particular social collapse threatening Turkey becomes clear when the masses of people not eligible for unemployment benefit and the millions of employees likely to be de facto laid off to survive on the government’s Turkish lira (TRY) 1,170 ($168) monthly payment for workers on unpaid leave are taken into account. Seyfettin Gursel, the leading professor of economy working on unemployment in Turkey, gave a stark warning in an April 17 op-ed for Ahval entitled “Coronavirus threatens 20 percent unemployment and social collapse in Turkey.”

The IMF’s most recent forecasts on the pandemic’s economic impact predicted a global GDP loss of 3% in 2020, with a 7.5% loss in the EU and a 5% loss in Turkey. Gursel, however, has come up with a “far more optimistic” prediction of zero growth for Turkey. He has “reasoned that after losses of more than 20% in Q2, the economic gears would start turning again over the rest of the year, and growth in Q3 and Q4 could mitigate much of those losses and leave GDP at around last year’s level.”

Even optimistic scenario is “frightening”

Nevertheless, Gursel advised: “Even if this optimistic scenario is accurate, the level of unemployment and lost income is frightening. The pandemic reached Turkey at a time when unemployment was already high, at slightly above 4mn in January.”

In addition to the 4.36mn people in Turkey officially registered as unemployed as of January by national statistical institute TUIK, there were 2.86mn people listed as ready to work but logged as not having actively sought a job in the previous few weeks. Some 946,000 of them said they had lost any hope of finding employment.

Labour union DISK came up with the January percentage of 23.1% in presenting a wide-scope unemployment rate including people ready to work even though they had not attempted to find employment in recent weeks.

Looking at the official unemployment figure of 4.36mn, Gursel predicted that at least 3mn more people would become unemployed in the coming months. “In this case, even if the [potential] labour force does not grow, we are looking at unemployment above 20%. What is worse, the rate of long-term unemployment—people who have been seeking a job for a year or more—would also leap,” he added.

Turkey’s number of long-term unemployed rose to 750,000 in 2017 and by 2019 it had risen to more than 1mn, equivalent to one out of every four jobless people.

“If the coronavirus does push the number of unemployed people up to 7mn, then an optimistic estimate is that one-third of these will be long-term unemployed, bringing that figure to 2.3mn,” Gursel warned.

Half the minimum wage

On April 15, the Turkish parliament approved a complex law on banning layoffs for three months amid the coronavirus outbreak. The legislation allows employers to send workers on to unpaid leave for three months, during which period the government will make the payment of TRY1,177 per month for each worker. Yet the monthly net minimum wage stands at TRY2,324 for 2020. The hunger threshold (minimum food expenditure for a four-person family) was at TRY2,345 as of March, according to a monthly survey by yellow labour union Turk-Is.

Turkey has thus created a new category of “employed unemployed” people who still have jobs on paper, but are forced to get by on the $168-equivalent per month provided by the government, according to Gursel.

“For the many unregistered workers who have lost their jobs, and all the street vendors, local tradesmen and artisans whose income has vanished, the package provides nothing. They will have to make do with whatever modest support the Family and Social Service Ministry provides,” he added.

Although the government actually “provides nothing”, it is fond of announcing economic packages and throwing numbers around in the name of financial support.

On April 25, Finance Minister Berat Albayrak was beaming at the cash register, stating that the support in Turkey’s coronavirus economic rescue package had been doubled to TRY200bn from the TRY100bn announced back on March 18. His figures included tax cuts that will never accrue such as taxes on flight tickets at a time when all flights are forbidden.

TRY120bn is the value of loans extended to companies while only TRY22bn has gone to 4.4mn families, or TRY1,000 per family, a figure even below the “employed unemployed’s” TRY1,177 for each of three months.

Meanwhile, the country’s food inflation woes are growing, not that this is seen in the official inflation data.

On April 19, government-run Anadolu Agency reported that the Agriculture Ministry had launched an “emergency action plan” for legumes. Wheat prices faced by Turkey and its wheat supplies, meanwhile, may be hit by Russia’s export restrictions.

On April 24, the World Trade Organization (WTO) and the International Monetary Fund (IMF) called in a joint statement for the lifting of trade restrictions on medical supplies and food.

“Volatility in food prices”

“We are likely to see much more volatility in food prices [in EMs]—so initially a spike in demand for food as people go into lockdown, then a drop as the poor use up disposable incomes, then a spike again as a shortage of labour to sow and harvest impacts back on supply,” Timothy Ash of Bluebay Asset Management said on April 23 in a note to investors.

“Turkey is likely to record one of the steepest falls in GDP [at 8.3%] in the [Emerging Europe] region this year. Scope for further monetary easing is limited by currency concerns and fiscal policy will need to cushion the hit to the economy. Meanwhile, there is a growing risk that banks will struggle to roll over their large external debts, raising the threat of a wave of bank defaults and an even steeper downturn,” Capital Economics said in its “Emerging Europe Economic Outlook – Q2 2020” note.

Some 90% of Turks now see the coronavirus crisis as a serious threat to the Turkish economy, according to an Ipsos’ survey conducted between April 9-13. The survey recorded a figure of 70% for March 13-16.

When those who see the virus emergency as a partial threat are added, almost all Turks see risks to the economy, Ipsos Turkey CEO Sidar Gedik told T24.

The latest survey also found that 61% of Turks intended to take measures in relation to the virus even after the official announcement of the end of the outbreak. This is bad news for the government. It dreams of returning to “normal” in mid-May. The plans for mid-May include transporting local tourists to holiday resorts and filling shopping malls.

Quarantine in Marmaris

“Shopping malls [in Turkey] may well be open and domestic flights reactivated by mid-May but who will have money to shop and fly I don't know. Turkey's tourism sector may be severely handicapped by quarantine restrictions. For example, if you book a bargain basement two-week package holiday in Marmaris this summer but when you land, you must spend that fortnight in quarantine, this may discourage you. Maybe if you are missing lockdown, you could fly to the Aegean and recreate the tedium?” Julian Rimmer of Investec remarked on April 28 in a note to investors.

Ask Turkish tourism industry representatives for their outlook and they will tell you that a 50% contraction this year in their sector is an optimistic forecast, Oya Narin, head of tourism association TTYD, said on April 27.

The next day business daily Dunya reported that the tourism industry’s losses were running at 80% due to cancellations of reservations by both foreign and domestic tourists, while the transaction losses of tourism agencies had reached 99%.

“The economic consequences of the coronavirus will continue to reverberate long after lockdowns are lifted. GDP growth is likely to rebound as restrictions are eased, but GDP levels will remain depressed for a while. More fundamentally, the virus will leave a legacy of higher debt and larger and more active governments. It may also intensify the growing pushback against globalization,” Neil Shearing of Capital Economics said on April 27 in a note entitled “The effects of the coronavirus will reverberate for decades to come”.